Weak management and insufficient internal risk controls at Societe Generale made it possible for a 31-year-old trader to cause nearly 5 billion euros (US$7.9 billion) in losses at the French bank, a report from an internal investigation has concluded.
The report, released on Friday, also said that the trader, Jerome Kerviel, might have had an accomplice.
A panel of independent directors reported that two of the trader’s direct bosses had proved “deficient” by failing to detect, despite many red flags, that Kerviel had traded beyond his authority for more than two years and exposed the bank to 50 billion euros in risk.
“The fraud was facilitated, or its detection delayed, by weaknesses in the supervision of the trader and in the controls over market activities,” the panel said, citing evidence from the audit.
“The direct supervisor lacked trading experience and was not given a sufficient degree of support in his new role,” it said. “He demonstrated an inappropriate degree of tolerance in relation to the taking of intraday directional positions and neither he, nor his own supervisor, carried out an adequate review of the trader’s activities on the basis of the available figures and reports or reacted to the alerts that would have allowed them to identify the concealed positions.”
The supervisors were Martial Rouyere, who heads the Delta One trading desk, and Eric Cordelle, his deputy and Kerviel’s immediate manager. Both men are being dismissed by Societe Generale, two people with knowledge of the bank’s actions said.
The 71-page internal audit, called the Green Mission, said that Kerviel might have been helped by an assistant when he entered fake trades or unwound unauthorized positions.
“We have discovered indications of internal collusion involving a trading assistant, a middle-office operational agent,” the audit said.
“Due to the current ongoing criminal investigation, we have been unable to question this employee,” the report said. “The possibility of such internal collusion must therefore be confirmed by the courts.”
The report said the unidentified assistant had manually entered almost 15 percent of Kerviel’s fictitious trades.
He entered “several abnormally high intramonthly provision flows, without having obtained any valid explanations as to their validity,” the report said.
One assistant to Kerviel, Thomas Mougard, became a witness in the case after it was discovered that he had entered several of the transactions. Magistrates are expected to decide by mid-June whether to open a criminal investigation against Mougard.
The report said Kerviel had sought to improve his results in an effort to increase his annual bonus.
The audit is the final draft of a version published in February that had already identified 75 alerts that should have exposed, but did not, Kerviel’s trading activities to his superiors.
The board of Societe Generale issued a statement with the report on Friday, saying that recent moves by the bank to improve its risk control systems meant that “the majority of the negative effects of the fraud on the bank’s business situation have been overcome.”